Market Reversal or Dead Cat Bounce? – Chris Hood

 

Date: 8/2/2022
Author: Chris Hood

 

 


All investors and traders, whether institutional or retail, are asking the same questions.

“Has the market bottomed out, and is this time to go long?”

Everyone asks the same questions during each correction or bear market. But honestly, no one knows the answer.

There are two ways to read this month’s rally.

First, it could be the beginnings of an actual reversal back into a bull run.

Reversals always begin on the shorter time frames (such as the daily) and gradually work their way into trend changes on the weekly and monthly.

If we can see SPY consolidate at higher prices like today, then the bull run might be able to turn things around. Only time will tell.

For whatever reason, big investors are buying.

These large funds may be betting on a reversal, or they could just be averaging down on their share prices. Whatever the reasoning, it appears that market sentiment has definitely shifted.

Information about the market always reaches big money first.

All we can do is see which way the whales are swimming and follow along. That’s why I don’t bother with company fundamentals and theories in trading.

I just do what the charts tell me.

And there has certainly been some positive momentum in the market this earnings season. So maybe the market will continue to go up despite the systemic economic issues the world is facing.


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Second, this could be just a wave of enthusiasm on the giant slide into a recession – a textbook dead cat bounce.

The weight of history supports this.

Bear markets rarely last for extended periods in the overall market cycle. However, they usually aren’t over quickly.

Some only last a few months, but the economy can take a year or more to fully recover.

Just as there are dips on the ride up, there will be peaks on the path down. It’s never a straight line.

SPY’s daily chart has been a straight shot up over the last several days. However, it has several strong layers of resistance between its current price and the resumption of a daily trend.

Honestly, I would like nothing better than to see a bullish market again.

I’ve honed my skills enough over the years to be profitable under all conditions, but it is nice to see solid uptrends.

It’s also much easier on the average retail trader – and when you make money that makes me happy.

But we have to play the cards we’re dealt. And right now it’s too close to call, but I still see more downside in the coming months.

If I’m wrong then so be it. I’ll just cut my losses and adjust my positions. 

The weekly and monthly charts still give me pause. Once those are moving they have a certain inertia that makes them hard to turn around.

All I can tell you for certain is that they charts don’t lie. Follow your system never let your hopes or biases lead you astray.

Poorly planned trades or oversized positions can easily take you out of the game.

I’d love to see every one of you in the live daily planning sessions each morning as an Alpha Hunters subscriber.

If not then I hope you’re making money on your own.

Whatever you do, stay safe out there.

Cheers,
Chris Hood


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